U.S. Corporations Show Debt Is Not Credit in Wall Street’s World

A March 7 entry in former Reagan Administration official David Stockman’s blog, “Stockman’s Corner,” updates the near-complete lack of real business credit in the U.S. economy.

Stockman starts with the extraordinary fact that in January, February and the first few days of March, U.S. business have borrowed $214 billion; but they have expended $128 billion of that on stock buybacks to benefit their stockholders’ and officers’ wealth, plus $21 billion on just one large merger of IT companies. Thus nearly three-quarters of the debt taken on, was matched by spending to blow up the stock market bubble. Symptomatically, GM announced March 9 another $5 billion stock buyback program, to start immediately.

He then looks at the picture for the last seven years, since the bank collapse, bailout, and economic plunge began. During that period, total business debt in the United States rose from $11 trillion in 2007 to $15 trillion now — so any idea that corporations were “deleveraging” from debt, as households were, is false. But the real spending rate on structures and equipment by business, known as capital expenditures or “capex,” did not grow. This capex, which had averaged 2% annual growth from 2000-2007 and 4.3% annual rate from 1990-1997 (already low parameters), grew at only an 0.4% annual rate from 2007-2014 inclusive.

That is, capital expenditures grew by a total of 3.4% for the whole period 2007-2014 inclusive, while business debt grew by 35%.

And since the rate of depreciation of business sector capital was $1.1 trillion/year during those seven years, net capital investment has actually been negative, Stockman says. It is no mystery why U.S. economic productivity, even measured by the fraudulent moneterist yardstick of production or services per worker-hour, has declined for 17 quarters in a row through the end of 2014. And this is not real new productivity, which results only from creative discoveries translated into technological and engineering advance.

This complete lack of real capital investment in the economy has occurred, Stockman exclaims, while the Fed printed $4.5 trillion to lend to banks, to create investment through the stock and corporate bond markets and through business lending. Though not repeated in this column, Stockman has frequently called for a “new super Glass-Steagall” to break these banks up.